Expanded Withholding Tax (EWT) on Professional Fees of Overseas Filipinos (Philippine legal perspective, updated to 11 June 2025)
1. Statutory foundation
| Provision | Key rule | Practical takeaway |
|---|---|---|
| § 57(B), National Internal Revenue Code (NIRC) | Empowers the Secretary of Finance to require “withholding at source” on certain income payments other than compensation. | All covered payors become withholding agents; failure to withhold triggers personal liability. |
| RR No. 2-98 (Withholding Tax Regulations, as last amended by RR 14-2023) | § 2.57.1(B) lists “professional fees, talent fees, consultancy fees, … and any other form of remuneration for the practice of profession” as subject to EWT. | Governs rates, thresholds, deadlines, and BIR forms. |
2. Who are “Overseas Filipinos”?
Overseas Filipino Workers (OFWs).
- Legal basis: Migrant Workers Act (RA 8042, as amended) defines OFWs as “workers who are to be engaged, are engaged, or have been engaged in a remunerated activity in a state of which they are not citizens.”
- Tax status: Almost always non-resident citizens under § 22(E) NIRC (present abroad most of the tax year), hence taxable only on Philippine-sourced income.
Emigrants (“balik-migrants”).
- Permanently reside abroad; also non-resident citizens.
Temporary overseas professionals (e.g., seafarers, short-term consultants).
- May still be resident citizens if presence abroad is < 183 days in a taxable year (§ 22(E)).
Why the distinction matters: EWT applies only if the income is Philippine-sourced and the payor is required to withhold. Whether the payer is in the Philippines or abroad is irrelevant; the determinative factors are source of income and status of the payee.
3. “Source of income” for services – the place-of-performance rule
| Where the services are physically performed | Resulting source (NIRC § 42) | EWT implication |
|---|---|---|
| Within the Philippines | Philippine-sourced | Payor must withhold (exceptions below). |
| Entirely abroad | Foreign-sourced | No EWT if payee is non-resident citizen; if resident citizen, the income is still taxable but the BIR accepts no withholding if services are verified as performed abroad. |
| Partly in and partly out | Apportion income; only Philippine portion is Philippine-sourced | Withhold only on Philippine portion (RR 12-2022). |
Remote work: BIR rulings (e.g., BIR Ruling DA-770-07, RMC 37-2020) treat services rendered via the internet as performed where the individual is physically located, not where the server or client is. Hence an OFW doing tele-consulting while abroad earns foreign-sourced income.
4. Applicable withholding tax rates on professional fees
| Payee | Gross receipts in the preceding year* | Rate (RR 11-2018) |
|---|---|---|
| Individual professional | ≤ PHP 3 million (VAT threshold) | 10 % |
| > PHP 3 million | 15 % | |
| General professional partnership (GPP) | Any | 10 % |
| Corporation / consultancy firm | ≤ PHP 720 k quarterly gross | 10 % |
| > PHP 720 k | 15 % |
*“Gross receipts” refers to the sum of actual cash/cheques received for the entire preceding taxable year. New practitioners default to the 10 % rate until the 3 million threshold is breached mid-year (RR 14-2019).
Lower or zero rate scenarios
- Sworn “income payee’s affidavit” (BIR Form 2307 Attachment C) supporting that prior-year income did not exceed P250 k: still 10 %, not zero; the affidavit only averts an erroneous 15 %.
- BIR-issued Certificate of Exemption (rare; usually for entities enjoying special laws such as PEZA IT Enterprises or AFP retirees).
- Treaty relief (tax sparing): Possible for foreign professionals; irrelevant to Filipino citizens.
5. Compliance cycle for withholding agents in the Philippines
Withhold upon payment or accrual, whichever is earlier.
File & remit
Form Frequency Due date 0619-E Monthly 10th day of following month (eFPS staggered). 1601-EQ Quarterly Last day of month following quarter. Issue BIR Form 2307 (Certificate of Creditable Tax Withheld at Source) to the payee on or before the 20th day of the month after the close of each quarter—or “upon request” if earlier.
Annual alpha-list attachment to BIR Form 1604-E (now substituted by eAFS upload) on or before 31 Jan of the following year.
Penalties for late filing/remittance:
- Surcharge: 25 % (or 50 % if fraudulent).
- Interest: 12 % p.a. (prevailing legal interest) computed from original due to actual payment.
- Compromise: P1 k–P25 k per return.
6. Typical real-world scenarios
| Scenario | EWT required? | Reasoning |
|---|---|---|
| Filipino architect doing a one-month on-site design review in Manila; client a PH property developer | Yes (10 / 15 %) | Services rendered in PH by resident/non-resident citizen alike. |
| Same architect performs follow-up drawings for the Philippine project from Dubai. | No, if documentation proves work done entirely abroad | Service physically done abroad → foreign-sourced. |
| PH law firm remits success-fee to its former partner now permanently based in Canada for advice on a local case. | Withhold on the portion relating to advice rendered during his home-leave in PH; none on work done in Canada. | Apportionment rule. |
| OFW engineer consults for a Japanese company; fees are paid into PH bank account. | No EWT (unless the Japanese payor has PH PE and opts to register as W/agent) | Source of income is where service is performed (Japan, site visits, online). Deposit location is irrelevant. |
| OFW doctor earns from tele-medicine sessions with Philippine patients while abroad. | No EWT (assuming doctor is a non-resident citizen) | Place-of-service = abroad → foreign-sourced; NIRC does not tax it. |
7. Critical documentation for non-withholding
When a Philippine payor does not withhold because the professional rendered services abroad, BIR examiners will require contemporaneous evidence, e.g.:
- Air-travel and immigration records (arrival/departure stamps).
- Service agreements expressly stating situs of work.
- Daily time records or online platform logs showing overseas IP addresses.
- Copies of foreign invoices, work diaries, or project records.
A prudent payor secures a BIR ruling or confirmatory email prior to payment for large-ticket engagements (NIRC § 246).
8. Interaction with the CREATE Act (RA 11534) and recent tax reforms
- CREATE left § 57(B) and the withholding-tax mechanism untouched; only corporate income-tax rates changed.
- The EWT rates in RR 11-2018 remain current through 2025.
- VAT exemption for OFWs under § 109(1)(L) on “services rendered abroad” does not translate into a withholding-tax exemption; VAT and EWT are separate regimes.
9. Treatment in individual income-tax returns
| Payee classification | Return to file | How withheld tax is treated |
|---|---|---|
| Resident citizen (≤ P3 M gross receipts à 8 % Income + Percentage-Tax option) | BIR Form 1701A | EWT is creditable against income-tax due. |
| Resident citizen (graduated rates) | BIR Form 1701 | Same; attach BIR Form 2307. |
| Non-resident citizen / OFW | No Philippine return if all income is foreign-sourced; file Form 1701-Q/1701 only for PH-sourced income. | EWT credits limited to PH-sourced portion. |
10. Local government imposts
- Professional license tax/fee under the Local Government Code (up to PHP 300 annually) is due only if the professional “maintains an office or practice” in the locality.
- An OFW with no Philippine office is outside LGU jurisdiction; EWT status has no bearing here.
11. Common pitfalls & practical tips for compliance teams
- Assuming “Philippine payer = Philippine income.” Always apply the place-of-performance test.
- Over-withholding on reimbursable expenses. Reimbursements separately supported by receipts are not part of the taxable professional fee (RMC 16-2003).
- Failure to update prior-year gross-receipts affidavit— default 10 % may shift to 15 % mid-year; need quarterly monitoring.
- No withholding on “gross-up” payments. If the contract states a “net of all taxes” fee, the gross amount must be recomputed so tax is withheld from grossed-up base.
12. Penalties specific to overseas professionals
- Failure to file return after Philippine assignment: Resident citizens who become non-resident mid-year must still file a part-year return.
- EWT non-creditability in host country: Some OFWs rely on Philippine EWT as foreign-tax credit abroad; however, many jurisdictions credit only income taxes, not withheld credits unless accompanied by the BIR Form 2307 and a Philippine return.
13. Conclusions
The Expanded Withholding Tax on professional fees is territorial in application: unless services are performed in the Philippines, payments to Overseas Filipinos escape EWT—even when the client or payor is Philippine-based. Conversely, any Philippine-sourced slice of the engagement, no matter how small, obliges the payor to withhold 10 % or 15 % and to comply with the full panoply of BIR filing, remittance, and certification duties. Both payors and Overseas Filipinos should therefore:
- Document situs of services contemporaneously;
- Assess residency status each tax year;
- Monitor gross-receipt thresholds to avoid wrong-rate exposure; and
- Keep BIR certificates to maximize credits and forestall assessments.
With these guardrails, stakeholders can navigate the EWT regime without tripping the often-costly penalties that come with Philippine withholding-tax audits.